Mascoma Corp.: 'We have no experience in the markets in which we intend to operate'

A "green" energy company that received tens of millions of dollars from taxpayers while promising 70 jobs by the end of this year has created only three and received strong criticism from environmental and fiscal groups across the political spectrum.

Mascoma Corp., a New Hampshire-based business, was awarded a grant of $20 million from the state of Michigan as part of the Centers of Energy Excellence program in 2008 and amounts totaling up to $100 million from the federal government over the last few years to build a plant in Kinross, a small town in the Upper Peninsula.

The company was founded in 2005 by professors from Dartmouth College to implement technology that converts biomass into ethanol.

"This is a bad energy project," said Pat Egan, who lives near the plant. "There haven't been any jobs yet … the politicians are driving them towards a short-sighted approach."

Egan has worked with a group of citizens in the Kinross area to oppose the plant for fiscal and environmental reasons. The group, Alternate Energy Coalition, has been working with the Michigan chapter of the Sierra Club to gather information and are seeking legal action against Mascoma.

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In September 2008, Mascoma pledged 70 jobs at the plant by the end of 2012. On Feb. 29 of this year, Mascoma reported to the MEDC that only three jobs had been created by the grant. The company has been given the full $20 million from the state.

"Michigan is proud to partner with Mascoma as a part of our commitment to lead the nation in alternative energy production," former Gov. Jennifer Granholm said on Oct. 7, 2008. "This company, and their partners, will create jobs in Michigan."

She wasn't alone in singing the praises of Mascoma.

“I am pleased to have played a role in helping to bring this significant investment to Chippewa County," said former U.S. Rep. Bart Stupak on Oct. 15, 2008.

On Dec. 14, 2011, Mascoma announced a cooperative agreement with the federal Department of Energy, in which Mascoma would receive "up to $80 million in DOE funding." This agreement came in addition to $20 million that Mascoma previously received from the Department of Energy for research and development.

Though jobs projections and plant construction have been wildly exaggerated, the company is preparing to go public. On Sept. 16, 2011, Mascoma filed an S-1 with the SEC in preparation for an Initial Public Offering to raise $100 million.

The S-1 document shows that Mascoma has accumulated a deficit of over $135 million and a revenue stream that is 86 percent from government grants. CEO Bill Brady was paid a total compensation of $5 million in 2010.

A Mascoma representative was reached but did not respond to a request for comment.

In the company's filing with the SEC, Mascoma lists as a risk factor that it has "no experience in the markets in which we intend to operate."

It appears that the company has also had problems with jobs projections and profitability outside of Michigan.

In November 2008, Mascoma was awarded a $910,000 grant from the Next Generation Energy Board of Minnesota. Then-Gov. Tim Pawlenty announced the grant, the largest awarded by the board, by stating, "The development of Minnesota's first commercial scale cellulosic ethanol plant is closer to reality because of this joint venture."

"It may be too late to get the money back, but we ought to use this as a learning lesson and never step into it again," said John Frey, a member of the Next Generation Energy Board.

In December 2008, Mascoma formed a joint venture with J.M. Longyear called Frontier Renewable Resources, which would create and operate the Kinross plant. Delays in the plan surfaced in May 2010. A setback in financing delayed the construction of the plant and the projected jobs numbers began dropping.

"We’ll get the financing for Kinross," Mascoma CEO Brady said in May 2010. “It’s just a matter of time."

It appeared that the financing came on Jan. 13, 2011, when Mascoma announced that "Valero Energy Corporation, the nation's largest independent oil refiner, [had] invested in Mascoma Corporation."

While Mascoma announced that Valero "would potentially invest up to $50 million," Mascoma's filing with the SEC indicates that Valero bought only $5 million worth of equity.

Ken Nielsen, vice president of operations for Frontier, told Michigan Capitol Confidential that the company expects to "start construction by the end of the year."

These types of investments, however, don't sit well with some.

"Taking money from our existing businesses and citizens and gambling it via corporate welfare schemes is just a bad idea," said Michigan State Rep. Tom McMillin, R-Rochester Hills. "You'd think, intuitively, that a company that says they need a government handout in order to make a go of it is pretty suspicious anyway.

"Our state government needs to continue its focus on creating a better environment for all job providers by knocking down barriers that have been erected by the previous governor and legislatures."

Obamacare repeal-and-replace is underway, and regardless of whether it passes or fails big, changes are coming for Michigan’s medical services and insurance industry, and the state’s social welfare system, especially Medicaid.

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